"We are at risk of stifling the successful results of the many state-funded initiatives. Building a strong continuum of capital in Michigan is critical now more than ever in order to accelerate our progress and lay a solid foundation for growth over the next 10 to 20 years," the report states.

The MVCA projects demand for VC in Michigan to grow to more than $3 billion by 2013.

On the up side, the report shows the total capital under management by 15 firms in Michigan grew to $1 billion in 2008 from $900 million in 2007. As recently as 2001, there were just seven VC firms in the state managing $520 million.

The average size of Michigan VC funds grew last year as well last year: $46 million, versus $40 million in the prior year.

Those increases came as venture capital nationally declined: There was $197 billion under management across the U.S. in 2008, compared to $258 billion in 2007; and funds averaged $144 million, versus $162 million the year before.

Despite the steady growth, Michigan still far more capital in order to retain the new companies created in the years to come and "is at risk of not being able to fund its own entrepreneurs."

"The opportunity to keep promising companies in the state to grow new economy jobs is at risk," the report states.

Other findings in the report include:

• VC firms in Michigan raised $49 million in 2008, about 60 percent of the $85 million collective goal.

• There were two successful exits in 2008: Ann Arbor-based HealthMedia, an online health-coaching company that Johnson & Johnson acquired in October; and Sirco Corp. in Okemos, a company acquired in July that tracks requirements to sell insurance in each of the 50 states.